Fed Vice Chair for Supervision, Michael Barr, defended the “Basel Endgame” proposal at the American Bankers Association conference on Monday. The proposal, designed to modify how banks calculate necessary capital reserves to safeguard against losses, reflects international standards established by the Basel Committee on Banking Supervision in response to the 2007-2009 financial crisis.
Barr argued that bolstering capital requirements for large banks would enhance the financial system’s resilience to unexpected stress. He emphasized that this would not harm lenders’ profitability or their market value in the long term. According to Barr, the increase in capital requirements related to lending forms a minor part of the overall capital augmentation, leading to an increase in funding costs by just up to 3 basis points. He attributed this rise primarily to trading and other operations that have historically resulted in outsized losses.
The banking sector has expressed concerns that the proposal could negatively impact mortgage borrowers, green project financing, and the broader economy. Barr contends that strong capital reserves are crucial for lenders to weather economic downturns and unforeseen risks. He pointed to Silicon Valley Bank’s recent failure as evidence of the need for system reinforcement.
In the context of Silicon Valley Bank’s failure, it’s worth noting some insights from InvestingPro. The bank, known by its ticker SLAB, has been experiencing some financial setbacks. According to InvestingPro data, SLAB has seen a significant drop in its price over the last three months (-25.59%), and even more so over the last six months (-31.44%). This suggests a significant loss of investor confidence.
Moreover, the InvestingPro Tips reveal that analysts anticipate a sales decline for SLAB in the current year, and its revenue growth has been slowing down recently. The bank also does not pay a dividend to shareholders which might make it less attractive to some investors. On the brighter side, SLAB holds more cash than debt on its balance sheet, and its liquid assets exceed short-term obligations, indicating a strong financial position despite the recent setbacks.
Fed Chair Jerome Powell has voiced support for the proposal but has also indicated a willingness to listen to feedback and concerns. Isaac Boltansky of BTIG sees this situation as a test of Barr’s policymaking freedom in his supervisory role.
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